Market Segmentation Theories and Positioning Strategies
The Case of Nokia
Market Segmentation
Market segmentation, according to (2004), is the act of dividing distinct groups of buyers who might require separate products and/or marketing mixes (). According to (1994), market segmentation refers to subdividing the market into several groupings, with each group being recognized for its preferences regarding products/services and methods of delivery (). Market Segmentation is a marketing management technique which can help firms find ways of establishing competitive advantage. A market segment is a section of a market which possesses one or more unique features that both give it an identity and set it apart form other segments. Market segmentation amounts to partitioning a market into a number of distinct sections, using criteria, which reflect different and distinctive purchasing motives and behaviour of customers. Segmentation makes it easier for firms to produce goods or services that fit closely with what people want (, 2000). Segmentation enables marketers to divide prospective customer groups into segments that consist of people with similar demographic, psychographic or usage patterns (, 2001). Market segmentation is the process of dividing up the total market into groups with relatively similar product and/or service needs in order to design specifically tailored products and or services to match segment needs. Segmentation also leads to strategies that aim at the differences among consumers who comprise potential target markets, effective market segmentation requires a sufficient number of customers, resources to meet the needs of the segment, and the ability to reach these customers ( 2003).
Market Segment and Target Marketing
A segment is a unique group of customers who share some common characteristics which make them different from other groups of customers. Different segments may have different needs; they may require different versions of the same product; they may pay different prices; they may buy in different places; they may be reached by different media. In consumer markets, customers and prospective customers can be grouped together, or segmented by: attitude, lifestyle, age, gender, stage in the family life cycle, or by job type, level of income and many other relevant variables. Segmenting and selecting the optimum market segments is called target marketing. This is a vital marketing skill. Target marketing requires an ability to:
- Find the key characteristics that break a market into relevant ‘actionable segments’
- Identify and quantify which customers fall into which segments
- Target the best segments most likely to give the best results
Bases for Segmentation
Identifying what each segment wants, what it can afford and whether it is loyal to a particular competitor and how it might respond to an offer is vital information for the marketer. Careful segmentation and accurate targeting keeps a firm close to the market, reduces waste, finds the best customers and helps them to keep them satisfied. One can segment consumer markets using many different variables including:
o Geographic – geographic segments mean location and this can include streets, towns, cities, regions, countries, continents etc (, 2000).
o Demographic – demographics or social statistics includes age, sex, family, life cycle, job type/socioeconomic and group income level (, 2000).
o Geodemographic – geodemographics mixes geographic and demographic data to create categories of house types and locations (, 2000).
o Psychographic – psychographics attempts to segment according to psychological profiles of people in terms of their life-styles, attitudes, and personalities (, 2000). This approach according to and (2001) focuses on lifestyle rather than demographic information as a basis for describing segments. For this purpose, questions about activities, interests, and opinions are asked.
o Behavior Patterns – behavioral segments address behavior patterns which include usage and uses, the way a product or service is used, and in other words, the benefit enjoyed (, 2000). In behavioural segmentation, buyers are divided into groups on the basis of their knowledge of, attitude toward, use of, or response to a product. Many marketers believe that behavioural variables – occasions, benefits, user status, usage rate, loyalty status, buyer-readiness stage, and attitude – are the best starting points for constructing market segments (, 2000).
o Benefits Enjoyed – a segment can be segmented by the benefits enjoyed. Different segments buy the same product for different reasons (, 2000).
Segmenting to Gain Competitive Advantage
1. Operational Excellence
Firms that are operationally excellent are not primarily product or service innovators, nor do they cultivate deep, one-to-one relationships with customers. Instead, they provide middle-of-the market products that can appeal to the mass of consumers in a category by offering the best price with the least inconvenience. Firms with this orientation have core business processes that sharpen distribution systems and provide no-hassle service; a structure that has a strong, central authority and a finite level of empowerment; management systems that maintain standard operating procedures; and, a culture that acts predictably and believes one size fits all ( and , 2001).
2. Product Leadership
they must address three challenges. One is to foster creativity, knowing how and where to look for it and how to recognize it. Another challenge is to get products to market expeditiously. And, product leadership implies being the first to present the latest technology or the best new service to the marketplace. Product leadership companies have core business processes that nurture ideas, translate them into products, and market them skillfully. They have a structure that acts in an organic way; management systems that reward individuals’ innovative capacity and new product success; and a culture that experiments and thinks “out-of-the-box” ( and , 2001).
3. Customer Intimacy
A firm that selects customer intimacy as its primary means of delivering value is integrated into the minds and behavior of its customers. Instead of selling a product, a customer-intimate firm offers a solution to the buyer’s problem and, thereby, forges a close relationship with the buyer ( and , 2001).
Positioning
Positioning refers to the decisions and activities intended to create and maintain a firm’s product concept in the customer’s minds. Market positioning amounts to arranging for a product or service to occupy a clear, distinctive and desirable place relative to competing products – in the minds of target customers (, 200). Positioning is the process of distinguishing a company or product from competitors along such dimensions as product characteristics or values that are meaningful to consumers. Positioning strategy aids customers in evaluating product attributes that are of significance or value to them ( 2003). Once the segment is determined then a decision has to be made as to how to position the product. The idea of positioning is to find out how the consumers/ consumers in particular segments are going to perceive the product and service and the company’s message about these products and service (, 2003). According to (2006), positioning is not what you do to a product, it is what you do to the mind of the prospect. Positioning is the act of designing the company offer and image so that it occupies a distinct and valued place in the target customers’ minds.
Positioning Concepts
The positioning concept may be functional, symbolic or experiential. The functional concept is relevant to products designed to solve consumption-related problems for externally generated consumption needs. The symbolic concept relates to the buyer’s internally generated need for self-enhancement, role position, group membership or ego satisfaction. The experiential concept is used to position products that provide sensory pleasure, variety or cognitive stimulation ( 2000).
Positioning Strategies
1. Competition Based Positioning – focuses strategy on one’s position in relation to that of the competition. The effort is to dominate competition on benefits important to consumers.
- Category Membership – a starting point in establishing a brand position is to identify its category membership. Membership indicates the products with which a brand competes. It informs the consumer about the goals that might be achieved by a product. There are a variety of ways to convey a brand’s category membership. Benefits are frequently used to announce category membership to ensure consumers that a brand will deliver on fundamental reason for using a category. Attributes and image can be used to provide rationales that give consumers reason to believe that a brand has the benefit that implies membership in a category ( and , 2001).
- Points of Difference – a starting point in developing a point-of-difference is to identify accepted consumer beliefs. The strongest positions are ones in which a brand has a clear point-of-difference on a benefit that prompts category use. Large brands are generally positioned using these benefits ( and , 2001).
There are two key facets of competition based positioning: membership and points-of-difference. Membership in the category is developed by highlighting benefits that are points of parity with other brands in the category, or by relating the brand to a category standard. Providing a rationale for believing a benefit gives consumers a reason to trust a membership claim. This rationale typically takes the form of some physical characteristic. Once a brand has achieved membership in the category, its advantage over the category members in terms of a benefit(s) that represent a point-of-difference ( and , 2001).
2. Goal Based Positioning – once the target attains a basic understanding how the brand relates to alternatives in the same category, brand growth may be achieved by deepening the meanings associated with the brand position. This entails demonstrating more explicitly how the brand relates to consumers’ goals and requires insight about what motivates consumers to use a brand. The brand is then positioned such that its essence implies goal attainment. The process by which this can be achieved is called laddering up, and the product of laddering up is brand essence ( and , 2001).
- Brand Essence – laddering up is based on the notion that in developing product point-of-difference, two types of characteristics are considered; one is attributes and image, and the other is benefits. These characteristics are related to each other in a specific manner. Attributes and image are concrete factors that can be used to infer a benefit ( and , 2001).
- Category Essence – a focus on consumers’ goals as the basis for positioning can be undertaken at a category level as well as a brand level. Like brand essence, category essence can be achieved by relating the brand to other objects that imply the essence of the category that is associated with the achievement of some goal. Category essence uses insight about how a category fits with consumers’ goals as a brand’s point-of-difference. The assumption is that if consumers perceive a brand to be positioned in a manner that is sensitive to their problems, that brand is viewed as a solution to their problems ( and , 2001).
Differentiation
Differentiation is the act of designing a set of meaningful differences to distinguish the company’s offering from competitor’s offerings. The five dimensions of Differentiation are:
- Product – physical products vary in their potential for differentiation.
- Services – when the physical product cannot be differentiated easily, the key to competitive success nay lie in adding valued services and improving quality.
- Personnel – companies can gain a strong competitive advantage through having better-trained people.
- Channel – companies can achieve competitive advantage through the way they design their distribution channels’ coverage, expertise, and performance.
- Image – buyers respond differently to company and brand images. Identity comprises the ways that a company aims to identify or position itself or its products, whereas image is the way the public perceives the company or its products (, 2000).
I have discussed the different theories, and strategies in Marketing Segmentation, differentiation and positioning. Now, I will dig deeper and apply these segmentation theories and positioning strategies by assessing a particular company’s product(s). I will use Nokia as a case study. I chose Nokia, because I believe that the company uses marketing segmentation theories and positioning strategies extensively in their campaign to gain competitive advantage and reach the consumers. The company is interesting because of its success in marketing and its extensive use of different market segment theories and positioning strategies to leverage growth and leadership in the Mobile Phone Industry.
Nokia Corporation
Nokia is the oldest as well as the biggest company in Finland. Nokia today is one of the most valuable brands in the world (, 2006). Nokia Corporation (Nokia) is a the world’s top mobile phone manufacturer. Nokia offers a range of mobile devices for every market segments. The Company also provides equipment, solutions and services for network operators, service providers and corporations. Nokia operates through four business groups: Mobile Phones, Multimedia, Enterprise Solutions and Networks. Nokia Corporation is a Finland-based manufacturer of mobile phones. Over the years, the company has been trying to create a create a string brand name and manage consumer perceptions. Nokia is now a major brand in many markets around the globe.
Nokia started in 1865, when a mining engineer built a wood-pulp mill in southern Finland to manufacture paper. Over the next century, the company diversified into industries ranging from paper to chemical and rubber. In the 1960s, Nokia ventured into telecommunications by developing a digital telephone exchange switch. In the 1980s, Nokia developed the first “transportable” car mobile phone and the first “handportable” one. During the 1990s, Nokia divested all of its non-telecommunications operations to focus on its telecommunications and mobile handset businesses. Today, Nokia is the world leader in mobile communications. Nokia’s mission is simple: Connect People (Nokia, Connecting People). The mission is accompanied by understanding consumer needs and providing offerings that meet or exceed those needs (, 2004).
Market Segmentation: Nokia
Different people have different usage needs. Some consumers may want and need all of the latest and most advanced data-related features and functions, while other are content with basic voice connectivity. Even people with similar usage needs differ in lifestyles. There are people who are active, while there are some who are more interested in arts and fashion. Nokia, in its efforts to answer the needs and wants of its consumers, has divided its market into six segments:
- Basic – Basic consumers need voice connectivity and sturdy style.
- Expression – Expression consumers want to customize and personalize features.
- Classic – Classic consumers prefer a traditional appearance and web browser function.
- Fashion – Fashion consumers want a very small phone as a fashion item.
- Premium – Premium consumers are interested in all technological and service features.
- Communicator – Communicator consumers want to combine all their communication devices such as telephone and PDA (, 2004).
It is clear that Nokia uses the Psychographic approach to market segmentation. Nokia segments its market by analyzing their lifestyles, activities, interests and opinions. Psychographic, more specifically, ‘lifestyle marketing’ is aggressive, active, high touch marketing. It takes a company into the community where it talks with the members of a target segment (, 1990). Lifestyle marketing pinpoints the way in which an individual lives and spends money. The target market is seen as a smaller homogeneous segment ( , 2003).
Nokia’s Product Line
- Basic segment – to target the basic segment, the company provides very easy to use, low-priced phones that are likely to be used primarily for voice communication. They are designed for consumers who are buying their first mobile phone.
- Expression segment – this segment are still in the low price range but allow young adults to have fun while communicating with friends.
- Classic segment – this segment wants to roam between various global networks and other web browser features.
- Fashion segment – this segment wants a phone to show off. Nokia designs phones to answer the needs of this segment that provide basic communication and other features.
- Premium segment – this segment wants a phone that has a distinct and elegant design not to show off but to appreciate ( 2004).
Towards 2010: Nokia’s Market Research
In 2006, Nokia designed a market research that aims to understand the consumer in 2010. This research was done by analyzing different bases for market segmentation – Geographic, Psychographic, Behaviour Patterns. This market research put a particular focus on the youth.
Based on the market research conducted by Nokia, the consumers are now in the age of individuation.
- The individual is moving away from conventional behavior and large group reference models.
- Markets and demand are increasingly fragmented.
- Self Confidence – The USA are leading the way. Self-confidence is being restored across all segments of the population.
- Internet and Technotainment – The internet has had most impact on consumption and entertainment habits and not on values. Technology used to mean freedom and empowerment. Now it means pleasure and entertainment.
- Youth Culture – Youth culture is an interactive multimedia culture. The youngest increasingly live and act a multimedia universe that is part of their routine.
- Celebrity – Celebrities have become products for mass consumption. Among the under 30 year olds: this trend translates into an interest to try brands or products used by celebrities.
- Music – Music is becoming the number one global youth culture. Music is the common language of young adults across countries (, 2006).
Positioning and Differentiation
Since the early 90s, Nokia’s products have defined the brand in people’s minds – making Nokia the mobile phone icon of the mobile phone industry. At the core of the Nokia brand has always been a very human and emotional sensitivity, as expressed in its slogan “Nokia Connecting People” and its tag line “We call this human technology.” Nokia believes connecting is about human relationships and feeling close to everything that matters. Nokia believes that value does not lie in objects, but in the infinite network of experiences the company unleashes. People bring a set of expectations to the brand. At the rational level, they think about ease of use, quality, reliability, design and what the device can do for them. At the emotional level, the company wants the consumers to feel and think that Nokia is the only brand that connects people through very human technology (, 2007). The Nokia tagline “We call this human technology, gives consumers a sense of trust and consideration by the company by implying that Nokia understands what consumers want in life and how to Nokia can help. Nokia uses a combination of aspirational, benefit-based, emotional features, and competition-driven positioning strategies. It owns the ‘human’ dimension of mobile communications, leaving its competitors wondering what to own, having taken the best position for itself ( and , 2001).
Nokia uses points-of-difference as a positioning strategy. The company claims a benefit (Connecting People) that prompts category use. Nokia uses superior advertising and marketing techniques to gain competitive advantage against its competitors and thus claim the benefit that motivates category consumption for itself. Nokia differentiates its offerings from those of its competitors through product differentiation (style, design, form etc.) and image differentiation.
Let us take a further analysis on how Nokia uses its “Connecting People” point-of-difference. Connecting people strategy that Nokia employs is built around the consumer’s goal to connect with their loved ones and people who are important to them. This point-of-difference is taken further through its “Mobile devices for all” statement. Nokia connects people using its mobile devices – mobile devices that answers every consumer needs, wants, and goals. For example let us look at the most recent product lines of the company.
Nokia Nseries
Nokia Nseries multimedia computers offer consumers the ability to record video and still pictures, print-quality images, watch TV, listen to music, access the web and e-mail, and make phone calls.
Nokia Eseries
The Nokia Eseries is a rnage of devices designed for business users and the IT organizations that support them. The devices differ in terms of physical design and features, but all use a single software platform that can be integrated with different applications and corporate solutions.
Nokia always aims to offer a broad and balanced range of commercially appealing mobile devices with attractive aesthetics, design, features and functionality for all major consumer segments and price points. From its entry-level phones to its advanced multimedia computers, all Nokia devices are based on the company’s core strengths of usability, high quality and innovation. While today mobile devices are still used primarily for voice and text message communication, people increasingly also use them to take and send pictures, listen to music, record video, watch television, play games, surf the Internet, check e-mail, manage their schedules, browse and create documents, and more ( , 2007). The human dimension (Human technology) of Nokia’s products aims to create a point-of-difference by making the consumers believe that Nokia has a product specifically designed for everybody. Consumers get the impression that Nokia understands their needs, wants and goals. In order to establish or reinforce this point-of-difference Nokia promises to help people feel close to what matters to them (Nokia, Connecting People).
Positioning and Differentiation: Nokia Nseries Collection
Let us look at how Nokia Positions its Nseries collection to the minds of the consumers and how it differentiate its products from those of the competitors.
Nokia Nseries
Nokia Nseries is a range of high performance multimedia computers, delivering unparalleled connected mulitimedia experiences by combining the latest technologies with stylish design and ease of use. With Nokia Nseries products, consumers can now use a single device to do everything from snapping print-quality images, reading email, listening to music, browsing the Web, watching TV on the move and much more.
Product Differentiation
Nokia products are known for its functionality, ease of use and durability. Nokia positions itself in the minds of the consumers by giving them the things that they value most. However, the mobile devices industry is highly competitive and attributes like functionality, ease of use and durability are expected in every product. Product differentiation is important to maintaining Nokia’s competitive advantage. Nokia differentiates its Nseries products through style, design, features and quality.
Features
- Photography and Video
- Music
- TV and Video
- Internet, Home and Mobile Computing
- Games
Quality
Nokia Nseries multimedia computers combine a range of functions is a single package. The Nseries multimedia computers have a programmable operating system that lets its users download and install software applications. Users can add features and applications to their multimedia computers without having to buy a new device. Multimedia computers can be connected to the Internet, enabling people to communicate, create and share experiences, participate in Internet communities and access digital content using mobile broadband connections such as WLAN and 3G. Nokia Nseries devices are multi-talented computer that incorporate multiple functionalities into one beautifully designed device (, 2006).
Style and Design
Nokia N75
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Nokia N95
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Nokia N93i Vox
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Bibliography:
Credit:ivythesis.typepad.com
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